Fixing student loan rates isn't enough

Our view: Senate compromise on borrowing costs is better than nothing, but it does little to address the rising costs of higher education

July 24, 2013

After months of partisan haggling and finger-pointing, the Senate is scheduled to vote today on a bill that would keep interest rates on college student loans from doubling. Actually, the rate already has doubled — from 3.4 percent to 6.8 percent — because Congress missed a June 30 deadline to avoid an automatic increase in borrowing costs that was scheduled to kick in if lawmakers didn't act. Now senators and representatives are rushing to play catch-up before students report to campus, in hopes that they won't be blamed for yet another failure to act in the national interest.

Averting a sudden, 100 percent hike on loan rates should have been a no-brainer all along for lawmakers in both parties. But such is the gridlock in Congress that even such a relatively simple fix was enough to grind the machinery of government nearly to a halt — and deprive thousands of students of the opportunity to continue their education.

There's no reason Congress couldn't have gotten this done months ago if lawmakers had been less interested in scoring ideological points than in doing what was necessary to ensure that an opportunity didn't slip from the grasp of millions of students who see getting higher education as a pathway to a better life. The government should be doing everything possible to help them achieve their dreams, not putting obstacles in their way, especially when the cost of college is going through the roof.

Liberal critics complain, not without reason, that this measure sells out future students at the expense of current ones. Interest rates on federally subsidized student loans would be related to the 10-year Treasury note, an index proposed by a bipartisan group of senators as well as by President Barack Obama. That means rates will remain low — less than 4 percent for undergraduates — so long as interest rates remain low. But if the economy improves and interest rates rise, as economists and congressional budget analysts expect, the rates will rise. The legislation caps rates at 8.25 percent for undergraduates (and 9.5 percent and 10.5 percent, respectively, for graduate students and parents), meaning that future students may wind up paying even more than the doomsday rates that Congress is seeking to avoid today. Effectively, the bill pays for keeping rates low now by letting them rise later.

Nonetheless, the compromise is better than doing nothing. Students and their parents need some protection against a precipitous increase like the one that would otherwise go into effect. But this cannot be the end of the story when it comes to the price of higher education. Even if this measure passes the GOP-controlled House and is signed into law, Congress will still have a long way to go toward solving the larger problem of making a college eduction affordable for all those who seek it.

U.S. college students are already carrying a staggering $1 trillion in student loan debt, and that figure shows no sign of abating as long as tuition, fees and other costs continue to rise. According to the National Center for Education Statistics, the average cost for tuition and room and board for a student at a four-year college has risen by 35 percent when accounting for inflation in the last decade. In the 2010-2011 school year, the last for which data are available, the average cost was $21,657, only about a quarter of which could be covered by the subsidized student loans at the center of the current congressional debate.

Making college more affordable indisputably benefits society. College graduates can expect to earn at least twice what students with only a high school diploma make over the course of their careers, and that greater earning potential translates into more disposable income to spur growth in an economy largely driven by consumer spending. It also means more tax revenue for the government to invest in infrastructure, education and other public services.

But achieving that is going to take action much more inspiring than Congress' recent stumble toward a compromise on Stafford loans. President Obama has twice raised the issue of ever-increasing college costs in his State of the Union addresses, suggesting that the federal government should create a post-secondary version of his Race to the Top education initiative to foster efforts to increase value and even raising the idea that federal accreditation could be linked to colleges' efforts to contain costs. Congress has done next to nothing in response. Backers of the student loan interest rate compromise say it will save the average borrower $1,500 in interest costs. Unfortunately, that's a drop in the bucket compared to the price of a higher education.